What Business Structure Should I Use For My Business?

Government figures[1] show that the UK private sector comprised 3.2 million sole proprietorships (sole traders), 2.1 million companies and 368,000 ordinary partnerships.

Selecting the right business structure is one of the first and most important decisions for any start-up. The structure you choose will affect your liability, tax position, control and future growth options.

Sole Trader

A sole trader is the simplest way to set up a business. It is an individual (sometimes trading under a business name) who begins trading and keeps all the profit after tax. The key features are:

• Simple and quick to set up;
• Minimal reporting (Self Assessment with HMRC);
• Full control of the business;
• Unlimited liability (personally liable for any debts).

Unlike limited companies, there is no requirement to file accounts publicly.

Partnership

A partnership is a business run by two or more individuals who share profits and responsibility. The key features are:

• Shared management and profits;
• No Companies House filings required but a partnership tax return must be filed at HMRC;
• Flexible structure (usually governed by a partnership agreement);
• Unlimited liability (personally liable);

Partnerships can form at any time when there is “relation which subsists between persons carrying on a business in common with a view of profit” so care needs to taken to ensure a partnership is not inadvertently created.

Limited Partnership

A limited partnership is a slightly modified form of the partnership previously mentioned. The key features are:

• Must be registered at Companies House;
• Must have one general partner (unlimited liability) and one limited partnership (limited liability);
• Limited partnerships cannot manage the business;
• Shared management and profits.

Limited Company

The most well-known, a limited company is a separate legal person and must be incorporated at Companies House. The key features are:

• Separate legal personality;
• Limited liability;
• Legal responsibility to file certain documents at Companies House.

Compared to the previous two, there is more legal responsibilities that come with managing a limited company.

Limited Liability Partnership (LLP)

Like the limited company, an LLP is created when incorporated at Companies House. Unlike the partnership, it cannot be inadvertently created. The key features are:

• Separate legal personality;
• Members pay tax on their share of the profits (as with a partnership);
• Limited liability for members;
• Legal responsibility to file certain documents at Companies House.

Company Limited by Guarantee

Rather than being limited by shares, these companies are limited by an individual’s “guarantee” to pay an amount, usually £1, should the company be wound up. The key features are:

• Separate legal personality;
• No profit distribution;
• Legal responsibility to file certain documents at Companies House;
• (if charitable) additional obligations and reporting to Charity Commission required.

Why You Should Take Professional Advice

As explained, some business structures can arise unintentionally and some can establish responsibilities.

You should seek advice to ensure:

• You chose the right structure for your situation;
• You do not inadvertently create a partnership;
• Your reporting and compliance responsibilities are understood;
• Your liability exposure is understood.

We would also strongly recommend discussing any tax implications with a qualified tax advisor.

How We Can Help

Our specialist corporate solicitors can work with you and your accountant from the outset to provide you with expert legal advice on the most suitable structure you’re your business, whether you are establishing as a sole trader, partnership, LLP or company.

We have experience in advising on and setting up a wide range of business entities can prepare the necessary incorporation and constitutional documents tailored to your specific needs.

If you would like support or assistance, or have any questions, then please Contact Us on 0116 212 1000 or contact Louis Tranter on 0116 212 1036.

[1] Business population estimates for the UK and regions 2025: statistical release – GOV.UK